I have a site where the Theme is VERY custom and I can no longer work with the developer.
Should I be worried about the theme no longer working in 3.0.4. and if so what is the easiest way for me to test my theme before upgrading?
The simplest way to test is to not bother with a DB backup and restore or another server. Install 3.0.4 in a subfolder like /wordpress304/ and use a different database prefix like wp304_, because you're using the same DB as the first install. Test the theme. If it works, update the first install to 3.0.4 and delete the subfolder install and the database tables it used. If it doesn't work, you have a way to fix the code before using it live.
Try this simple steps to verify it!